Japan Labor Data Not So Rosy

Data from Japan today helped bolster a feeling that Japan’s economy might withstand a tax hike in April that’s needed to get public finances under control.

But data on the labor force weren’t as pretty as solid increases in consumer prices and industrial production – both of which were taken as signs that Japan is succeeding in putting years of deflation behind it.

On the face of it, employment data was good. Excluding self-employed workers, the economy added 460,000 people to the work force in January from a year earlier. The jobless rate was 3.7%, flat from December, and there continued to be more jobs than workers.

Scratch at the surface, though, and things aren’t as rosy. For one, Japanese companies continue to rely on non-regular workers. This signals they remain wary of hiring workers who they find it hard to fire later given Japan’s rigorous protections for full-time staff. That’s hardly a ringing endorsement for the economy.

Full-time, permanent jobs fell by 94,000 to 32.42 million, while non-regular workers rose 1.33 million to 19.56 million, making up more than one-third of the workforce.

“Given the move among firms to boost in non-regular workers, many companies are not yet convinced the recovery will be sustained,” said Hisashi Yamada, chief economist at Japan Research Institute.

Moving more workers to full-time positions, and rising wages across the board, are crucial to the long-term success of Prime Minister Shinzo Abe’s attempts to ensure the economy stays on a solid footing.

The economy exited recession last year, driven by monetary and fiscal stimulus. That has boosted consumer spending. But there’s fears this will tail off in April when the government raises the sales tax. Only wage increases and a more vibrant job market will ensure consumers keep their pocket books open, many economists say.

Firms have been hiring workers in part to handle increased consumer spending on big ticket items such as housing and autos ahead of April’s sales-tax hike. But the economy is expected to falter in the April-June quarter after the tax rise, and that could hurt employment.

“The jobless rate, which has steadily fallen over the past months, is nearing the level where a further decline can’t be expected,” Japan Research Institute’s Mr. Yamada said.

Both wholesalers and retailers boosted hiring in January, but those areas are highly cyclical and could shed staff if the economy turns down when the sales tax kicks in.

Workers’ skills also don’t always match the jobs on offer. Mr. Yamada said there’s a shortfall of 2 million or more workers — almost equal to the total number of unemployed in Japan — in areas like telecommunications that require high skills. Despite a chronic labor shortage in the construction sector, employment fell 1.7% from a year earlier to 3.99 million.

“Unless a mismatch in the supply-and-demand conditions is erased, that will become a drag on Japan’s economic growth,” Mr. Yamada said.

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